Wondering what happens to the housing market during a recession? A recession is defined as two consecutive quarters of negative economic growth. It often coincides with high unemployment and reduced business activity.
Housing markets normally cycle through highs and lows that affect home buyers and sellers differently. But since recessions don’t happen regularly, their effects on the market may catch buyers and sellers by surprise, especially if they’ve never experienced one before.
Understanding the effects of a recession can help you make informed decisions about buying or selling a home, during challenging economic times. In this post, our team at Your Home Sold Guaranteed Realty — The Nathan Clark Team will take a closer look at the impact of a recession on the housing market as well as some tips for navigating the market during economic uncertainty.
What Happens To The Housing Market During a Recession?
So, what happens to the housing market during a recession? A recession typically affects the balance of supply and demand that drives a housing market, whether on a local, state, or national level.
For example, recessions mean people generally have less financial ability to make larger purchases. This comes as a result of high unemployment, inflation, income instability, poor credit, or just general economic uncertainty.
As a result, the demand for housing decreases, which causes home prices to drop and the number of homes sitting on the market to rise.
A recession may also impact the housing market by making it harder to obtain financing. Lenders may be concerned about their ability to get their money back, causing them to tighten their lending requirements.
On the other hand, the Federal Reserve may lower interest rates as an incentive to spur the economy. This means prospective home buyers may benefit by entering the market, if they find a home and lender that fits their needs.
Of course, it’s important to remember that a recession’s effects on the housing market are temporary. Most markets will eventually recover, and supply and demand will return to equilibrium.
What Can We Learn From Past Recessions?
The housing market is closely tied to the economy’s health. So if there’s a recession, the housing market will likely experience some effects. However, this doesn’t mean the housing market is guaranteed to crash.
For example, home prices actually stayed steady or continued to rise over the past five recessions– excluding the Great Recession in 2008 and the recession in the 1990s.
In addition, recessions in the 1980s and 1990s were often characterized by double-digit interest rates. But this didn’t have a big impact on housing demand because the median household income was high enough to keep up with the increased cost of mortgage rates.
These examples show that a recession doesn’t automatically signal bad news for the housing market. But this isn’t always the case. Most home buyers and sellers are familiar with the Great Recession that occurred from 2007 to 2009. This recession coincided with a housing crash that led to a significant drop in home values and decreased demand for housing in many areas.
Overall, a recession isn’t a reason to panic. Each one is different and can have different effects on the market. For this reason, studying the market’s response to past economic downturns can provide valuable insights into how the current market might react.
A real estate professional can help you understand historical market patterns and determine which areas might be more resilient to a recession. That way, you can make the most informed decisions possible, whether you’re buying or selling.
How Can You Navigate The Housing Market During a Recession?
If you’re wondering whether to buy or sell a home during a recession, the answer depends on your finances and desired timeline.
If you’re looking to buy, the best way to ensure you find your dream home at the best possible price is by working with an experienced realtor. Realtors can help you analyze home prices to ensure you aren’t overpaying.
They can also point you to trusted lending professionals, so you find a great deal on a home loan. Be sure to shop around and interview a few different lenders before choosing the right fit.
It’s equally important for home sellers to work with an experienced realtor. If you’re selling in a recession, you may not be able to sell for as much as you’d originally anticipated. But if you want the best chance of selling your home for top dollar, you need to make your home as move-in ready as possible.
Home buyers likely won’t have as much extra cash to spare for repairs and renovations. In fact, they tend to be more willing to pay a higher price for the convenience of having a nice, move-in-ready home.
For this reason, it’s a good idea to invest in making any necessary repairs or renovations on your home before listing it for sale.
Our Team Can Help You Buy or Sell in a Recession
Taking the time to learn about what happens to the housing market during a recession is an important way to stay informed and make the best decisions for your situation.
No matter what the conditions are like in your local housing market, working with a real estate professional is imperative. Realtors have the knowledge and tools to help you analyze market patterns and choose the best time to buy or sell a home.
At Your Home Sold Guaranteed Realty — The Nathan Clark Team, our team has been serving New England home buyers and sellers for over 21 years. During this time, we’ve established ourselves as real estate experts that people can trust to help them navigate the housing market.
We have hundreds of five-star reviews from clients satisfied with our exceptional customer service and in-depth industry knowledge. On top of that, we offer several buyers and sellers guarantees to protect you during a real estate transaction.
To learn more about working with our real estate team, give us a call at 401-288-3557 or fill out the form below for more information.